“Cisco is probably a safe place to park money if it’s worried about a recession, but not a great place if you expect interest rate cuts”: analyst

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Shares of Cisco Systems, Inc (NASDAQ:CSCO) gained in after-hours trading on Wednesday after the company reported upbeat fourth-quarter earnings.

The results came on the back of an exciting earnings season. Here are some key takeaways from analysts.

Cisco reported fiscal fourth-quarter revenue of $13.64 billion, beating analysts’ consensus estimate of $13.537 billion. The company reported adjusted EPS of $0.87, beating analysts’ consensus estimates of $0.85.

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Needham analyst Alex Henderson reiterated Cisco with a caveat.

Oppenheimer analyst Ittai Kidron maintained an outperform rating on Cisco with a $58 price target.

Piper Sandler analyst James E. Fish reiterated neutral with a $52 price target.

BofA Securities analyst Tal Liani maintained a buy on Cisco with a $60 price target.

Needham: Henderson said Cisco is probably a safe place to park money for investors worried about a recession, but not a better place for investors expecting interest rate cuts.

The analyst said Cisco is showing positive order growth for the second quarter in a row, but this is on depressed numbers. He also noted that Cisco is losing share to Arista, Juniper and Extreme in Networking, Palo Alto, Zscaler, Crowdstrike and others in Security, and Zoom and Microsoft in Collaboration.

Henderson estimated first-quarter revenue of $13.8 billion and EPS of $0.87.

Oppenheimer: Cisco reported a solid fourth quarter, beating estimates on the back of lower inventory digests, accelerating organic revenue growth for Security and a rebound in order growth.

The analyst is optimistic about the opportunities in SaaS and Cloud, including security and collaboration, which will drive more recurring revenue.

The analyst noted an attractive FY 2025 setup and outlook (which calls for 3% year-over-year growth) as unbeatable given continued improvement in Enterprise order growth, a large opportunity in AI infrastructure, sustained momentum in security in behind SASE, XDR, and a return to Network Security.

Kidron estimated first-quarter revenue of $13.7 billion and EPS of $0.87.

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Piper Sandler: Fish pointed to the sustainability of management’s belief that the demand environment will return to normal and Cisco’s continued investment shift to AI, Cloud and Security, which is collapsing its product structure with macro considerations, cost savings potential for margins, the impact of Splunk and organizational changes.

The target multiple remains a discount to large-cap peers (27x), which Fish noted was justified given Cisco’s lower growth. It raised the multiple slightly to reflect better-than-expected AI order trends and fiscal 2025 guidance.

Fish estimated Q1 revenue of $13.8 billion and EPS of $0.88.

BofA Securities: The reassessment is based on Liani’s belief that Networking should see renewed growth as demand for campus change normalizes. Ethernet-based AI builds and new product announcements should support the re-acceleration of its security work. The analyst noted Splunk’s synergies supporting growth initiatives in Security and Observability. Additionally, Cisco’s shift to recurring and subscription revenue is positive and helps support the stock, with 50 percent of revenue now recurring, Liani said.

With the stock underperforming the NASDAQ by 24% year-to-date and given Liani’s expectations for growth and margin improvement in fiscal 2025, the analyst noted that Cisco represents an attractive opportunity. The price target is based on approximately 14.5x Enterprise Value to Free Cash Flow using Fish’s estimate for calendar year 2025, which aligns with tech peers at 9x-20x (appropriate given Cisco’s stability and high dividend yield of 3.0%+).

Liani estimated first-quarter revenue of $13.8 billion and EPS of $0.87.

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